August Month in Review: RBA continues holding pattern on rates

By the resi financial blog team, 06 August 2014

At its August board meeting, the Reserve Bank of Australia left the cash rate once again on hold at 2.5 per cent. The decision means that rates have been on hold for 12 months – the longest single period since 2006.

The RBA said monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. “On present indications, the most prudent course is likely to be a period of stability in interest rates,” RBA governor Glenn Stevens said.

In the statement, Mr Stevens said that conditions remain accommodative and long-term interest rates and risk spreads remain very low.

“Markets appear to be attaching a very low probability to any rise in global interest rates or other adverse event over the period ahead,” he says. “In Australia, growth was firmer around the turn of the year but this resulted mainly from very strong increases in resource exports as new capacity came online.”

There are signs of improvement in investment intentions in areas outside the resources sector but firms are waiting for more evidence of improved conditions before committing to any significant expansion.

He added there has been moderate growth in consumer demand and a strong expansion in housing construction is now under way – a result of rising housing prices. RP Data reported a 1.1 per cent increase in dwelling prices over the quarter to June.

Economists say that rising housing prices are unlikely to lead to a lift in rates as long as inflation remains within the RBA’s 2-3 per cent target range and unemployment continues to stay under 6 per cent. Although the RBA is expected to keep an eye on housing values in two of Australia’s largest cities: Sydney and Melbourne.

Most predictions are for the official cash rate to remain low for at least the remainder of the year, lending support to housing demand. This means savers are continuing to look for higher returns in response to the low rates on safe instruments such as term deposits.

With expectations for rates to start rising next year, now is a good time to consider fixing mortgage rates to lock in the low levels.